Three major equity index sponsors – S&P Dow Jones Indices, FTSE Russell and MSCI – announced that they would remove ten Chinese companies from their indices. These actions were in response to the Executive Order signed by the President on November 12, 2020. The Executive Order bans investments by U.S. persons in publicly traded securities of Chinese Communist military companies (as defined in the Executive Order) (“CCMCs”), or securities that are derivative of, or designed to provide investment exposure to, such securities. There are 31 CCMCs listed in the Executive Order.

S&P Dow Jones Indices and FTSE Russell removed these constituents from their respective indices on December 21, 2020. Removals from the MSCI Indices became effective on January 5, 2021. MSCI Indices notes that the deleted issuers represent 0.04% of the MSCI ACWI Investable Market Indices and 0.28% of the MSCI EM Investable Market Indices.

Risk factors for structured products linked to emerging markets indices tend to be focused on actions by the government of the emerging market home country that might negatively affect the value of the constituent issuer's securities. Draftspersons should consider mentioning the effect of sanctions or other governmental actions by other countries that affect the value of the securities of the emerging market country issuer.9


9 The Securities and Exchange Commission has also raised concerns about risk factors relating to emerging or frontier markets issuers. See our article at:

Originally published in REVERSEinquiries: Volume 4, Issue 1.
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January 19 2021

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